BRRRR or House Hack?
New to Real Estate · Orange City, IA · Member since 2022 · 43 posts · 17 votes
BRRRR or House Hack?
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Investor · Torrance, CA · Member since 2019 · 50 posts · 35 votes
3yIf I was faced with this scenario this would be my thinking. I would look into house hacking. Seeing if I could get my living expenses to 0 or even make a little extra money each month. This way I could save my normal living expenses for the next down payment, or look into a BRRRR for the next property.
32 Replies
- Investor · Torrance, CA · Member since 2019 · 50 posts · 35 votes3y
If I was faced with this scenario this would be my thinking. I would look into house hacking. Seeing if I could get my living expenses to 0 or even make a little extra money each month. This way I could save my normal living expenses for the next down payment, or look into a BRRRR for the next property.
- New to Real Estate · Orange City, IA · Member since 2022 · 43 posts · 17 votes3y
Quote from @Bryce Hammill:
If I was faced with this scenario this would be my thinking. I would look into house hacking. Seeing if I could get my living expenses to 0 or even make a little extra money each month. This way I could save my normal living expenses for the next down payment, or look into a BRRRR for the next property.
Thanks Bryce, that's valuable advice!
- 3yJared HottleBusiness MemberReal Estate Agent · Cedar falls IA Waterloo, IA · Member since 2020 · 902 posts · 549 votes
Greetings from Northeast Iowa! I think if your cash is limited I would start with a house hack. Are you still living in the town you went to college? If so I would look to rent out rooms to older college kids or young professionals. I would buy a place every year for a few years until you build up some properties/equity. In the meantime start saving up for a down payment and start to explore using a local bank to finance a BRRR property.
Jared Hottle Real Estate59 Reviews - Real Estate Agent · Outer Banks, NC · Member since 2019 · 168 posts · 116 votes3y
I would persue house hack route for sure - depending on your market, you could possibly even house hack using airbnb. That is what I did - I lived in half my house and rented the other half on airbnb but I live in a vacation market. If you can find something to purchase that has somewhat of a seperate area (think studio apartment / lower level basement with private access) then you could house hack, and still feel as if you are living in your own space and not renting out individual rooms in your home - or do both and make even more money!
- Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes3y
How much cash are we talking? Generally speaking, house hacking is likely to be better because you have more control over your costs (rents going up for example). But if there is a fantastic BRRRR opportunity that help you get into your house hack faster, than that might work as well.
- 3yJaron WallingPro MemberRental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
Given the above information house hacking is the only option. You can't leverage your way through a BRRRR.
- New to Real Estate · Orange City, IA · Member since 2022 · 43 posts · 17 votes3y
Quote from @Jared Hottle:
Greetings from Northeast Iowa! I think if your cash is limited I would start with a house hack. Are you still living in the town you went to college? If so I would look to rent out rooms to older college kids or young professionals. I would buy a place every year for a few years until you build up some properties/equity. In the meantime start saving up for a down payment and start to explore using a local bank to finance a BRRR property.
I'm still living in Sioux Center as a student and will graduate in may, when I will move wherever my job takes me (civil engineering) and my future wife (nursing). Thanks for the valuable advice!
- New to Real Estate · Orange City, IA · Member since 2022 · 43 posts · 17 votes3y
Quote from @John Mausteller:
I would persue house hack route for sure - depending on your market, you could possibly even house hack using airbnb. That is what I did - I lived in half my house and rented the other half on airbnb but I live in a vacation market. If you can find something to purchase that has somewhat of a seperate area (think studio apartment / lower level basement with private access) then you could house hack, and still feel as if you are living in your own space and not renting out individual rooms in your home - or do both and make even more money!
Makes sense! would you back up the method of doing a new house hack each year?
- Real Estate Agent · Outer Banks, NC · Member since 2019 · 168 posts · 116 votes3y
if you want to move that often then yes for sure! I did that prior to having a family - now we live in a house that has a detached accessory dwelling unit out back so we are still house hacking but staying put for now
- New to Real Estate · Orange City, IA · Member since 2022 · 43 posts · 17 votes3y
Quote from @Rick Albert:
How much cash are we talking? Generally speaking, house hacking is likely to be better because you have more control over your costs (rents going up for example). But if there is a fantastic BRRRR opportunity that help you get into your house hack faster, than that might work as well.
I am currently in student debt. My girlfriend and I will be moving somewhere in the US for my civil engineering and her nursing. So what you're saying is I should probably start with house hacking unless there is a fantastic BRRRR property in the market that we move to?
- New to Real Estate · Orange City, IA · Member since 2022 · 43 posts · 17 votes3y
Quote from @Jaron Walling:
Given the above information house hacking is the only option. You can't leverage your way through a BRRRR.
Isn't the whole point of BRRRR based on using leverage? My understanding is that I would simply need the down payment for a BRRRR property and money to renovate it, then you can use bank leverage to go from there?
- Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes3y
Quote from @Isaac Bartels:
Quote from @Rick Albert:
How much cash are we talking? Generally speaking, house hacking is likely to be better because you have more control over your costs (rents going up for example). But if there is a fantastic BRRRR opportunity that help you get into your house hack faster, than that might work as well.
I am currently in student debt. My girlfriend and I will be moving somewhere in the US for my civil engineering and her nursing. So what you're saying is I should probably start with house hacking unless there is a fantastic BRRRR property in the market that we move to?
Remember that lenders don't care about how much student loan debt you have. They only care about the monthly payments. That's why I bought my first house hack before paying off my student loans. Best decision I ever made.
With BRRRRs, you need capital or access to it. The idea is to buy fixers that wouldn't qualify for traditional financing. So if you are limited on cash, then maybe BRRRRs don't work for you.
- New to Real Estate · Orange City, IA · Member since 2022 · 43 posts · 17 votes3y
Quote from @John Mausteller:
if you want to move that often then yes for sure! I did that prior to having a family - now we live in a house that has a detached accessory dwelling unit out back so we are still house hacking but staying put for now
Gotcha. Any specific advice you could give for house hacking if I don't live in a touristy market? Have you been able to cover your entire mortgage with the rental income, or have you usually needed to supplement with your own money?
- New to Real Estate · Orange City, IA · Member since 2022 · 43 posts · 17 votes3y
Quote from @Rick Albert:
Quote from @Isaac Bartels:
Quote from @Rick Albert:
How much cash are we talking? Generally speaking, house hacking is likely to be better because you have more control over your costs (rents going up for example). But if there is a fantastic BRRRR opportunity that help you get into your house hack faster, than that might work as well.
I am currently in student debt. My girlfriend and I will be moving somewhere in the US for my civil engineering and her nursing. So what you're saying is I should probably start with house hacking unless there is a fantastic BRRRR property in the market that we move to?
Remember that lenders don't care about how much student loan debt you have. They only care about the monthly payments. That's why I bought my first house hack before paying off my student loans. Best decision I ever made.
With BRRRRs, you need capital or access to it. The idea is to buy fixers that wouldn't qualify for traditional financing. So if you are limited on cash, then maybe BRRRRs don't work for you.
Makes sense. Well maybe I'll lean towards starting out with a house hack then, and look to get into BRRRRs when I have more capital or access to it. It's my understanding that for BRRRRs I simply need enough money for the down payment and for renovations initially. Does this align with your understanding?
- Rental Property Investor · Minneapolis, MN · Member since 2022 · 20 posts · 17 votes3y
I'm a big fan of house hacking. We've done it 3 times.
With a hack you can get into a multi-family property with little money down, reduce your cost of living, gain equity and experience doing small projects on your own property. After a year or two of saving and tapping into your equity you can do it again.
You mentioned student debt above...Just a side note, I had around $40k in student debt and paid it off in about 2 years. My personal preference is to buckle down and pay off the student loan debt ASAP, then use the money that went towards the student debt to save for an emergency fund and down payment so you start investing in real estate. For me personally it's been very freeing to be done with student debt and once I was done paying my debts it's like I got an immediate raise overnight. Just something to think about.
- Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes3y
Quote from @Isaac Bartels:
Quote from @Rick Albert:
Quote from @Isaac Bartels:
Quote from @Rick Albert:
How much cash are we talking? Generally speaking, house hacking is likely to be better because you have more control over your costs (rents going up for example). But if there is a fantastic BRRRR opportunity that help you get into your house hack faster, than that might work as well.
I am currently in student debt. My girlfriend and I will be moving somewhere in the US for my civil engineering and her nursing. So what you're saying is I should probably start with house hacking unless there is a fantastic BRRRR property in the market that we move to?
Remember that lenders don't care about how much student loan debt you have. They only care about the monthly payments. That's why I bought my first house hack before paying off my student loans. Best decision I ever made.
With BRRRRs, you need capital or access to it. The idea is to buy fixers that wouldn't qualify for traditional financing. So if you are limited on cash, then maybe BRRRRs don't work for you.
Makes sense. Well maybe I'll lean towards starting out with a house hack then, and look to get into BRRRRs when I have more capital or access to it. It's my understanding that for BRRRRs I simply need enough money for the down payment and for renovations initially. Does this align with your understanding?
It depends on the deal. Hard Money Lenders vary since it is their own private money.
- New to Real Estate · Orange City, IA · Member since 2022 · 43 posts · 17 votes3y
Quote from @Dumisani Thomsen:
I'm a big fan of house hacking. We've done it 3 times.
With a hack you can get into a multi-family property with little money down, reduce your cost of living, gain equity and experience doing small projects on your own property. After a year or two of saving and tapping into your equity you can do it again.
You mentioned student debt above...Just a side note, I had around $40k in student debt and paid it off in about 2 years. My personal preference is to buckle down and pay off the student loan debt ASAP, then use the money that went towards the student debt to save for an emergency fund and down payment so you start investing in real estate. For me personally it's been very freeing to be done with student debt and once I was done paying my debts it's like I got an immediate raise overnight. Just something to think about.
Thanks for the advice Dumisani. Any specific advice you can give on house hacking, or maybe something you wish you'd have done differently?
- Rental Property Investor · Minneapolis, MN · Member since 2022 · 20 posts · 17 votes3y
Quote from @Isaac Bartels:
Quote from @Dumisani Thomsen:
I'm a big fan of house hacking. We've done it 3 times.
With a hack you can get into a multi-family property with little money down, reduce your cost of living, gain equity and experience doing small projects on your own property. After a year or two of saving and tapping into your equity you can do it again.
You mentioned student debt above...Just a side note, I had around $40k in student debt and paid it off in about 2 years. My personal preference is to buckle down and pay off the student loan debt ASAP, then use the money that went towards the student debt to save for an emergency fund and down payment so you start investing in real estate. For me personally it's been very freeing to be done with student debt and once I was done paying my debts it's like I got an immediate raise overnight. Just something to think about.
Thanks for the advice Dumisani. Any specific advice you can give on house hacking, or maybe something you wish you'd have done differently?
If you do house hack, you're going to be a landlord AND a neighbor so the dynamic is a bit different than being just a landlord.
In my opinion you need to develop a good, polite/ respectful relationship with the tenant, but also establish clear boundaries. My wife and I lived with our young son in 3 different properties so having a safe environment for our family, being good neighbors and balancing the business side was important to us.
Our management philosophy is "firm, but fair". By that I mean that I mean:
1) We have strict tenant qualification requirements that we don't deviate from (income must be 3x rent, 1 month security deposit, solid employment, credit score, no felonies, etc.)
2) We lay solid ground rules upfront so everyone is on the same page, like no drugs, late night partying, loud music, locking up common areas, security, etc.
3) At the same time we like to be friendly, personable and be flexible on things that we can accommodate. Check in on things, develop the relationships, over communicate stuff like maintenance requests, rehab projects, etc.
4) Finally some small nice gestures go a long way like sending a small gift card to your tenant to thank them for shoveling the side walk, buying them a coffee, etc. One of the guests on a recent BP podcast episodes talked about this concept and I agree wholeheartedly in the phrase she used that "tenant turn over kills cashflow". If I can spend $20 on a gift card once in a while and check in to see if a tenant needs anything or offer to swap out a hard to reach light bulb to keep them happy and satisfied I'm more than happy to invest in that. - Rental Property Investor · Carson, CA · Member since 2019 · 185 posts · 74 votes3y
@Isaac Bartels house hack.
- New to Real Estate · Orange City, IA · Member since 2022 · 43 posts · 17 votes3y
Quote from @Dumisani Thomsen:
Quote from @Isaac Bartels:
Quote from @Dumisani Thomsen:
I'm a big fan of house hacking. We've done it 3 times.
With a hack you can get into a multi-family property with little money down, reduce your cost of living, gain equity and experience doing small projects on your own property. After a year or two of saving and tapping into your equity you can do it again.
You mentioned student debt above...Just a side note, I had around $40k in student debt and paid it off in about 2 years. My personal preference is to buckle down and pay off the student loan debt ASAP, then use the money that went towards the student debt to save for an emergency fund and down payment so you start investing in real estate. For me personally it's been very freeing to be done with student debt and once I was done paying my debts it's like I got an immediate raise overnight. Just something to think about.
Thanks for the advice Dumisani. Any specific advice you can give on house hacking, or maybe something you wish you'd have done differently?
If you do house hack, you're going to be a landlord AND a neighbor so the dynamic is a bit different than being just a landlord.
In my opinion you need to develop a good, polite/ respectful relationship with the tenant, but also establish clear boundaries. My wife and I lived with our young son in 3 different properties so having a safe environment for our family, being good neighbors and balancing the business side was important to us.
Our management philosophy is "firm, but fair". By that I mean that I mean:
1) We have strict tenant qualification requirements that we don't deviate from (income must be 3x rent, 1 month security deposit, solid employment, credit score, no felonies, etc.)
2) We lay solid ground rules upfront so everyone is on the same page, like no drugs, late night partying, loud music, locking up common areas, security, etc.
3) At the same time we like to be friendly, personable and be flexible on things that we can accommodate. Check in on things, develop the relationships, over communicate stuff like maintenance requests, rehab projects, etc.
4) Finally some small nice gestures go a long way like sending a small gift card to your tenant to thank them for shoveling the side walk, buying them a coffee, etc. One of the guests on a recent BP podcast episodes talked about this concept and I agree wholeheartedly in the phrase she used that "tenant turn over kills cashflow". If I can spend $20 on a gift card once in a while and check in to see if a tenant needs anything or offer to swap out a hard to reach light bulb to keep them happy and satisfied I'm more than happy to invest in that.I appreciate your advice!
- Real Estate Agent · Outer Banks, NC · Member since 2019 · 168 posts · 116 votes3y
Quote from @Isaac Bartels:
Quote from @John Mausteller:
if you want to move that often then yes for sure! I did that prior to having a family - now we live in a house that has a detached accessory dwelling unit out back so we are still house hacking but staying put for now
Gotcha. Any specific advice you could give for house hacking if I don't live in a touristy market? Have you been able to cover your entire mortgage with the rental income, or have you usually needed to supplement with your own money?
I have been able to cover my entire mortgage. I would look for a single family home that has the ability to be set up like a duplex - large bedroom with seperate outside entrance that you could convert to a studio with a small kitchenette.. The first one I did was two levels and there was an interior staircase that led to both levels but had doors to each level - I was able to lock door to first level because there was also an exterior stair case that led just to the first level. I lived on first level and used exterior stair case - and renters used interior staircase to reach top level but did not have access to my area. I would look for something you can create a unique set up so that it basically functions as its own apartment so you could get more in monthly rent than just renting a room.
- 3yNiyi AdewoleBusiness MemberReal Estate Agent · Atlanta GA & Orlando, FL · Member since 2015 · 214 posts · 101 votes
Quote from @Isaac Bartels:
In today's markets as a new RE Investor just out of college, would it be wiser to start out with a house hack, or rent an apartment and pursue a BRRRR opportunity? I've heard good things about both, but want to know which option might be better for a young investor with limited cash.
Good Morning Isaac,
Solid question, however i would "reframe it". The question i would ask, is how could i do both?
I got started with a househack of a triplex in 2016. Prior to purchasing that home i was paying 1100 per month to stay in a dope 2 bed 2 bath loft apartment next to a pool in Louisville, Ky. I listened to bigger pockets, read books and decided to start with a house hack. I purchased a triplex for $190k, lived in one unit rented the others out and effectively covered my full mortgage with the other rents ($1100 in savings per month compared to renting). This triplex was not in the best condition and the units needed updates, so i systematically went about updating units (i.e. replacing carpet with LVP, installing granite countertops, new heating systems, etc) as issues popped up or as tenants turned over. Fast forward to 2021, i sold that house for $310k and the rents had increased from $1400 (when i was living in one unit), to $2200 (when i moved out of that unit), to $2850 when i sold it.
SUMMARY:
Househacking a home that needs a few updates will save you on rent costs and allow you to reinvest that money into adding value into the home you are staying in. All while limiting the risk of being a new investor working to BRRRR a home in a market that has shifted into the favor of buyers and is not on an untethered rise as the last 2 years. Also, can't beat a 3.5% downpayment. The $5000 i put in to acquire that triplex under FHA in 2016, allowed me to walk away with a 6 figure check in 2021.
- New to Real Estate · Orange City, IA · Member since 2022 · 43 posts · 17 votes3y
Quote from @Niyi Adewole:
Quote from @Isaac Bartels:
In today's markets as a new RE Investor just out of college, would it be wiser to start out with a house hack, or rent an apartment and pursue a BRRRR opportunity? I've heard good things about both, but want to know which option might be better for a young investor with limited cash.
Good Morning Isaac,
Solid question, however i would "reframe it". The question i would ask, is how could i do both?
I got started with a househack of a triplex in 2016. Prior to purchasing that home i was paying 1100 per month to stay in a dope 2 bed 2 bath loft apartment next to a pool in Louisville, Ky. I listened to bigger pockets, read books and decided to start with a house hack. I purchased a triplex for $190k, lived in one unit rented the others out and effectively covered my full mortgage with the other rents ($1100 in savings per month compared to renting). This triplex was not in the best condition and the units needed updates, so i systematically went about updating units (i.e. replacing carpet with LVP, installing granite countertops, new heating systems, etc) as issues popped up or as tenants turned over. Fast forward to 2021, i sold that house for $310k and the rents had increased from $1400 (when i was living in one unit), to $2200 (when i moved out of that unit), to $2850 when i sold it.
SUMMARY:
Househacking a home that needs a few updates will save you on rent costs and allow you to reinvest that money into adding value into the home you are staying in. All while limiting the risk of being a new investor working to BRRRR a home in a market that has shifted into the favor of buyers and is not on an untethered rise as the last 2 years. Also, can't beat a 3.5% downpayment. The $5000 i put in to acquire that triplex under FHA in 2016, allowed me to walk away with a 6 figure check in 2021.
Thanks Niyi, that's really helpful and insightful!
- Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3y
I say BRRRR! Take your money and move on.
- 3yJaron WallingPro MemberRental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
@Isaac Bartels Lets talk real world numbers instead of strategies and percentages. Give us a PP, market rent, and rehab budget.
I'll go on a limb here and state without cash, in 2022, it's impossible to do a BRRRR deal. It's likely you won't pull all of cash out of the deal. My opinion comes from repeating this strategy a few times in a cash-flow market. We're remodeling a property right now and based on my numbers we're going to trap about $25K into the deal. That's a BRRRR in 2022.
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